Van Leeuwen v Super Shine Products Limited HC Auckland Civ-2009-404-8401
[2011] NZHC 18
•27 January 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-8401
BETWEEN ANNE WINLOVE VAN LEEUWEN First Plaintiff
ANDANNE WINLOVE VAN LEEUWEN AND JOHN WINLOVE AS TRUSTEES FOR THE W R VAN LEEUWEN FAMILY TRUST
Second Plaintiffs
ANDSUPER SHINE PRODUCTS LIMITED First Defendant
ANDJIWA NADAN Second Defendant
Hearing: 26 May 2010
17 August 2010
Counsel: S Pidgeon for Plaintiffs
J MacGillivray and S Jass for Defendants (S Jass on 26 May 2010 only)
Judgment: 27 January 2011 at 4 pm
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment Application)
This judgment was delivered by me on 27 January 2011 at 4 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Izard Weston, PO Box 5348, Wellington
Tompkins Wake, PO Box 258, Hamilton
VAN LEEUWEN AND ANOR V SUPER SHINE PRODUCTS LIMITED AND ANOR HC AK CIV-2009-404-
8401 27 January 2011
Introduction
[1] The first and second plaintiffs, Ms Anne Winlove van Leeuwen and the trustees of the W R van Leeuwen Family Trust, apply for summary judgment on the issue of liability on their claim against the first and second defendants, Super Shine Products Limited and Mr Jiwa Nadan. The plaintiffs also apply for consequential orders directing a trial of the issue of amount.
[2] The essence of the plaintiffs’ claim is that:
a) The first defendant is in breach of its obligations under a sublease in failing to pay rent; and
b)The second defendant is in breach of his obligations under a guarantee in failing to make good the above breach.
[3] The application for summary judgment is opposed.
Background
[4] The relevant sublease is of industrial premises at unit 4, 13-15 Industrial Road, Penrose. The plaintiffs are the sublessors (the lessees under the head lease). The first defendant is the sublessee.
[5] The first defendant took assignment of the sublease by deed of assignment of
30 August 2005. The second defendant, in that deed, guaranteed the performance of the obligations of the first defendant, of which he is the sole director, under the sublease.
[6] The plaintiffs took assignment of the head lease (and therefore the relevant reversion) some months later, on or around 16 December 2005.
[7] I refer, for convenience, to the sublease as the lease.
[8] The first defendant ceased paying rent from 1 December 2007 and vacated the premises on 5 December 2007. The premises remained untenanted until 1 April
2009, from which date they were re-let at a substantially reduced rental.
The essence of the dispute
[9] The dispute centres on the alleged exercise by the first defendant of a right of renewal contained in the lease. Two essential issues arise:
a) Whether the lease was renewed (or whether the first defendant is estopped from denying the same) – in which case the first defendant was in breach of its obligations under the renewed lease in ceasing to pay rent when it did; and
b)The effect of any renewal – on which turns the liability of the second defendant for any breach by the first defendant.
[10] I turn presently to the issues for determination on this application for summary judgment. I deal first with the legal principles governing such an application. They are not in dispute.
Legal principles on summary judgment
[11] The plaintiffs apply for summary judgment under rr 12.2 and 12.3 of the
High Court Rules. Rule 12.2 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[12] Rule 12.3 provides:
12.3 Summary judgment on liability
The court may give judgment on the issue of liability, and direct a trial of the issue of amount (at the time and place it thinks just), if the party applying for summary judgment satisfies the court that the only issue to be tried is one about the amount claimed.
[13] The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]:
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).
Issues for determination
[14] The issues for determination may be stated as follows:
Was the lease renewed?
a) Have the plaintiffs satisfied the Court that the first defendant does not have an arguable defence to the plaintiffs’ claim on the ground that it did not exercise its right of renewal and therefore was not in breach of a renewed lease in ceasing to pay rent when it did? The first defendant contends it did not exercise its right of renewal and
remained in occupation under the holding over provision of the lease, terminable on one month’s notice, which it gave.
If the lease was renewed, to what effect?
b)Should the first defendant be held liable, have the plaintiffs satisfied the Court that the second defendant does not have an arguable defence to the plaintiffs’ claim on the ground that renewal was effected by way of a grant of a new lease to which it was not a party as guarantor and to which its original guarantee did not extend?
[15] I deal with each in turn.
Was the lease renewed?
[16] The authors of Hinde McMorland & Sim Land law in New Zealand (looseleaf ed, LexisNexis) discuss the exercise of a right of a renewal at [11.158]:
A lessee who wishes to exercise a right of renewal must proceed in conformity with the conditions in the renewal clause in the lease and must indicate clearly and unequivocally his or her intention to exercise the right.
[17] The renewal clause in the lease is cl 35 of the deed of lease. The deed of lease is in the Auckland District Law Society’s third edition 1993 (2) standard form. Clause 35 provides:
RENEWAL OF TERM
35.IF the Tenant has not been in breach of this lease and has given to the Landlord written notice to renew the lease at least three (3) calendar months before the end of the term then the Landlord will at the cost of the Tenant renew the lease for the next further term from the renewal date as follows:
(a)The annual rent shall be agreed upon or failing agreement shall be determined in accordance with clause 2.2 but such annual rent shall not be less than the rent payable during the period of twelve (12) months immediately preceding the renewal date.
(b)Such annual rent shall be subject to review during the further term on the review dates or if no dates are specified then
after the lapse of the equivalent periods of time as are provided herein for rent reviews.
(c)The renewed lease shall otherwise be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date.
(d)Pending the determination of the renewal rent the Tenant shall pay the rent proposed by the Landlord provided that the rent is substantiated by a registered valuer’s report. Upon determination an appropriate adjustment shall be made.
[18] Counsel agree that whether the first defendant exercised its right of renewal turns on the effect of an email sent by Mr Nadan on its behalf on 9 February 2007. It turns, specifically, on whether the email was in conformity with the conditions in cl
35 and whether it indicated clearly and unequivocally the intention of the first defendant to exercise the right.
[19] For completeness I refer to cl 2.2, to which cl 35 refers. Clause 2.2 provides:
Rent Review
…
2.2IMMEDIATELY following receipt by the Landlord of the Tenant’s notice the parties shall endeavour to agree upon the current market rent, but if agreement is not reached within fourteen (14) days then the new rent may be determined either:
(a)By one party giving written notice to the other requiring the new rent to be determined by arbitration, or
(b)If the parties so agree by registered valuers acting as experts and not as arbitrators as follows:
…
When the new rent has been determined the arbitrators or the valuers shall give written notice thereof to the parties. The notice shall provide as to how the costs of the determination shall be borne and such provision shall be binding on the parties.
[20] I turn to consider the relevant email. Counsel agreed its meaning is to be objectively assessed in context. Its context, or at least the context to which counsel have referred, comprises:
a) the deed of lease and the deed of assignment of the lease;
b)two emails that preceded the relevant email (the content of which are not in dispute); and
c) two voicemail messages that preceded the relevant email (the content of which are in dispute).
[21] The affidavit evidence as to the second and third of these is as follows.
[22] On 7 February 2007 Ms van Leeuwen emailed Mr Nadan. She wrote:
Re: Option to renew your lease of Unit 4 Industry Road
Could you please advise me whether you intend to renew your lease for unit
4 which is due for renewal on 1 April 2007.
I would appreciate it if you would advise me of your intentions before the end of the week.
[23] I pause to note that cl 35 required the right of renewal to be exercised three calendar months before the end of the term of the original lease on 31 March 3007. Clearly it was not. Counsel for the defendants accepted, however, that by the above email the plaintiffs waived this requirement, requiring instead that the right of renewal be exercised by the end of that week. Conformity with the conditions of cl
35 is not otherwise in issue.
[24] Mr Nadan replied to the above email minutes later. He refers in his reply to “Robert”. The reference is to Mr Robert Bonnici, the general manager of the first defendant. Mr Nadan wrote:
Thank you for your mail.
Robert and I are meeting later this week and we will confirm our position as requested.
[25] Mr Nadan deposes that on 8 February 2007 he left a voicemail message with
Ms van Leeuwen. His affidavit reads:
The message outlined the fact that while Super Shine would like to renew the lease, a meeting would need to be arranged to discuss aspects of the lease before Super Shine would signup for a further six years. In particular, I indicated that maintenance issues, compliance of the property with the legislative regime (e.g. adequate storage facilities for dangerous or
hazardous substances) and rental payments needed to be discussed. There is no question in my mind that the message made it absolutely clear that while Super Shine was looking to renew the lease, before any agreement as to the renewal of the lease was reached there were other issues that needed to be discussed and resolved.
(Original emphasis.)
[26] Ms van Leeuwen in her affidavit in reply replies as follows:
I do not recall receiving a message from the second defendant of the nature alleged …. However, I can confirm that I do not recall the second defendant indicating to me at any time that the first defendant was not intending to renew the lease unless or until issues had been discussed and resolved.
[27] Mr Nadan deposes that on 9 February 2007 he “made a number of follow-up calls”, in one of which he left another voicemail message. He deposes the message “confirmed that Super Shine was intending to renew the lease and wanted to arrange a meeting time … to discuss our plans for the future.” Ms van Leeuwen deposes that in Mr Nadan’s message he “stated that he intended to renew the Lease”.
[28] There followed, on that date, the email in issue. Mr Nadan wrote:
I left a message on your answer machine confirming our intension to renew the lease. We would like to make a time to meet with you and discuss our plans for the future. Robert is away out of town till after next week.
Please let us know when you are available to meet with Robert and I.
[29] As to the intended effect of this email, Mr Nadan deposes:
What I was referring to was the issue of renewing the lease, which involved understanding whether anything was to be done about the maintenance issues. At no point in the email does it state that Super Shine was unconditionally agreeing to the renewal of the lease.
[30] Such is the extent of the evidence of the background of Mr Nadan’s email of
9 February 2007. I turn to consider whether on a proper construction of the meaning of the email it clearly and unequivocally indicates the intention of the first defendant to exercise its right of renewal.
The submissions of counsel
[31] Counsel for the defendants relies on the evidence of Mr Nadan as to the voicemail messages that preceded the email. These, counsel submits, are “crucial in providing the context and background to the written correspondence”. In particular, counsel submits, if the evidence of Mr Nadan as to the alleged voicemail message of
8 February 2007 is accepted (for the purposes of this application, he submits, it must), “then the email of 9 February 2007 cannot possibly be read as a notice to renew”.
[32] Counsel for the plaintiffs submits the disputed evidence of Mr Nadan is inherently lacking in credibility and should be disregarded. The email in issue, counsel submits, should be taken at face value. Taken at face value, counsel submits, it clearly and unequivocally indicates the intention of the first defendant to exercise its right of renewal.
Discussion
[33] I repeat the observation of the Court of Appeal in Krukziener v Hanover
Finance Ltd at [26]:
The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements made by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).
[34] I accept the submission of counsel for the plaintiffs that the disputed evidence of Mr Nadan is inherently lacking in credibility and that the Court need not accept it uncritically. Adopting a robust approach to that evidence, I am satisfied that, assessed objectively and in context, the email of 9 February 2007 has the effect contended. My reasons follow.
a) The express terms of the email evince a clear and unequivocal intention to exercise the right of renewal. The reference to the desire
to arrange a meeting does not, in my view, condition or qualify that intention.
b)The evidence of Mr Nadan as to the communication by two earlier voicemail messages of a conditioned or qualified intention is inconsistent with the express terms of the email. Why would Mr Nadan have “made it absolutely clear” in his first voicemail message (refer [25] above) that renewal was conditional on resolution of certain issues, but fail to do so in his later email? If the conditionality of renewal was made similarly clear in his second voicemail message (he does not expressly say that it was) why would Mr Nadan, in an email in which he purports to reduce the effect of that message to writing, do so in a manner at odds with the same?
c) The contractual context is illustrative. The period in which the first defendant could exercise its right of renewal had formally expired. The first defendant was nearing the end of the extended period granted it to do so. To do so it had to give written notice in terms of cl 35. I am satisfied the first defendant did so by its email. If it had not, I note, it would have been liable to vacate on little more than a month’s notice. It was not an occasion for expression in unclear or equivocal terms.
d)The intention of the first defendant as expressed in the email was, further, a considered one. Mr Nadan was granted the remainder of the week to confirm it. It is apparent he met with Mr Bonnici for the purpose. He confirmed by voicemail message, for both of them, the intention to renew. He reconfirmed by email. Such formality would implausibly attend the formation and communication of an intention qualified or conditioned in the manner contended, or such sloppiness in its written expression.
[35] I am satisfied, in short, that Mr Nadan’s evidence of earlier voicemail messages that might have otherwise conditioned or qualified the express terms of the
relevant email is inherently lacking in credibility and I adopt a robust approach to it. The email clearly and unequivocally indicates an intention to renew the lease. It constitutes the requisite notice under cl 35 of the deed of the lease. It had the effect of renewing the term of the lease for a further term of six years to 31 March 2013. That term not having expired, the first defendant was in breach of the renewed lease in ceasing to pay rent from 1 December 2007. It is liable to the plaintiffs for the same.
[36] I turn presently to the effect of that renewal, on which the liability of the second defendant turns. I note, first, that my above conclusions – both as to the appropriateness of a robust approach to Mr Nadan’s evidence and as to the proper construction of the email – are reinforced by an examination of the evidence of the subsequent conduct of the parties.
The subsequent conduct of the parties
[37] Counsel referred me to Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 in which the Supreme Court considered the extent to which evidence of the subsequent conduct of the parties should be considered in the interpretive exercise. I have not found it necessary to consider subsequent conduct in reaching the conclusion above. I accept, however, the submission of counsel for the plaintiffs that the subsequent conduct of the first defendant is consistent with its having exercised its right of renewal and proceeding to determine the new rent. It is not consistent with its not having renewed the lease and remaining in occupation under the holding over provision.
[38] It suffices to make brief reference to certain features of the parties’ evidence:
a) The evidence of the plaintiffs is consistent with the mechanisms prescribed in the lease. Under these, the tenant was to give the landlord written notice to renew the lease. The annual rent was then to be agreed on and, failing agreement, to be determined in accordance with cl 2.2. Under cl 2.2 if agreement was not reached within 14 days either party could require it to be determined by
arbitration. Pending determination of the rent, the tenant was to pay the rent proposed by the landlord provided it was substantiated by a registered valuer’s report. The parties’ written correspondence is entirely consistent with the lease having been renewed and the disagreement being as to rent, in the context of the renewal and rent review clauses. It begins with a solicitors’ letter of 5 March 2007 in which the plaintiffs propose a new (increased) rent, substantiated by a registered valuer’s report. It is quite clearly this increased rent that lies at the heart of the dispute between the parties that follows. The subject line of a chain of emails initiated by Mr Nadan was “Industry Rd Rent Review”. The parties make repeated reference to recourse to arbitration. The first defendant paid the increased rent proposed by the landlord. By contrast, rent payable under the holding over provision (cl 38) is at the rate then payable – that is, not subject to review.
b)The plaintiffs’ present position was clearly expressed in its solicitors’ letter of 5 March 2007. It was restated in emails sent to Mr Nadan and Mr Bonnici by Mr Hendrikus van Leeuwen, Ms van Leeuwen’s son, on 26 April 2007 and 3 September 2007 respectively. It was not until its solicitors’ letter of 9 November 2007 that the first defendant expressly disavows renewal. It is inherently improbable that the first defendant would allow such a position, expressed clearly and definitively on at least these three occasions, to go uncorrected, was it wholly at odds with the basis on which the parties were negotiating.
c) The first and second of the concerns but for resolution of which Mr Nadan deposes the first defendant was unwilling to renew – maintenance issues and the legislative compliance or otherwise of the premises (refer [25] above) – are not features of the parties’ written correspondence. The concerns that are raised in that correspondence (for example low stud height) are raised in connection with the registered valuer’s appraisal of rent, and are inconsistent with their conditioning or qualifying an intention to renew.
d)The written correspondence is comprehensive, carefully considered and in it the parties were clearly alive to its legal import (as reflected by much of it being prefaced “without prejudice” and several express reservations of the parties’ positions). It is inconceivable it would be as irreconcilable with the parties’ verbal communications as would be the case if Mr Nadan’s evidence as to those communications was accepted.
[39] I refer finally to the following of Mr Nadan’s evidence:
Essentially all of Ms van Leeuwen’s evidence in support of the summary judgment application consists of references to written correspondence between the parties, making no attempt to detail the numerous telephone conversations and meetings between the parties, thereby giving a selective and inaccurate account of events. Looking back at the correspondence I now believe that the plaintiffs’ manufactured their written correspondence in such a way as to attempt to provide a record (which the defendants say is totally inaccurate) showing a renewal of the lease.
[40] I reject this notion. I am satisfied the parties’ written correspondence accurately reflects their dealings. Mr Nadan’s evidence to the contrary is inherently lacking in credibility. It is inconsistent with the undisputed contemporary documents. It is inherently improbable. The parties’ written correspondence paints a clear picture with which Mr Nadan’s evidence of the parties’ verbal dealings is entirely discordant. Rather, the subsequent conduct of the parties as disclosed in the written correspondence is consistent with my above interpretation of the email of 9
February 2007 as clearly and unequivocally evincing the intention of the first defendant to renew the lease, following which the parties reached a stalemate as to rent that ultimately gave rise to the proceedings with which I am now faced. It serves only to reinforce my earlier finding that the first defendant is liable to the plaintiffs for the breach of the renewed lease.
[41] I turn to the issue of the liability of the second defendant under the guarantee.
If the lease was renewed, to what effect?
[42] Counsel for the defendants submits that in the event the first defendant is held liable for breach of its obligations under the renewed lease, the contractual obligations of the second defendant did not extend beyond the term of the original lease. This, counsel submits, is because the renewal was effected by the grant of a new lease rather than by an extension of the term of the original lease. There ceased on expiry of the term of the original lease to be privity of contract between the second defendant and the assignor of the interest in the reversion in respect of future occupation of the premises.
[43] Counsel for the plaintiffs submits that renewal was effected by an extension of the term of the original lease. The second defendant’s guarantee extended to the first defendant’s obligations under the same. Privity of contract subsisted. Counsel submits, in the alternative, that the contractual obligations of the second defendant extended to the renewed term even if it was effected by a grant of a new lease, a submission to which I will return.
[44] I begin with the nature of the new term contemplated by the lease: a new grant of lease or an extension of the term of the original lease?
[45] The Court of Appeal in Sina Holdings Ltd v Westpac Banking Corporation [1996] 1 NZLR 1 (CA) adopted the following expression of the general law from Halsbury’s Laws of England (4th ed, Butterworths, London) vol 27(1) at [467] (at 4):
Where a lease contains an option to renew the lease, the exercise of the option ordinarily involves the creation of a new lease, and as regards the new lease there is no privity of contract between the landlord and the original tenant under the old lease which contained the option to renew; but the right given to a tenant may be simply to extend the term, in which case privity of contract endures between the original parties, even during the extended term.
[46] The Court continued (at 5):
[E]ach case will depend upon the true construction of the respective rights and obligations of the parties as expressed in the relevant documentation.
[47] The relevant documentation comprises the deed of lease and the deed of assignment of the lease. I begin with the former.
[48] Under the lease the tenant took a lease of the premises for “the term from the commencement date … as set out in the First Schedule”. The first schedule includes the following:
TERM: SIX (6) years
COMMENCEMENT DATE: 1 APRIL 2001
FURTHER TERMS: One (1) further term of SIX (6) years
RENEWAL DATES: 1 April 2007
FINAL EXPIRY DATE: 31 March 2013
[49] Clause 35 (refer [17] above) conditionally obliged the landlord to “renew the lease for the next further term from the renewal date”. Clause 35(c) provides:
The renewed lease shall otherwise be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date.
[50] A full bench of this Court had occasion to consider a substantially similar lease in Powell v Tinline Properties Ltd [2002] 1 NZLR 568. It adopted the starting point that ordinarily a renewal results in the creation of a new lease. It considered, however, that there were a number of clear indications that the parties intended not a new lease but an extension of the terms of the existing lease when the renewal took place.
[51] I am satisfied the deed of lease in the present case is, like that in Powell, one in which the parties intended that renewal be effected by an extension of the term of the existing lease. My reasons follow. For the most part they mirror those of the District Court Judge from whose decision the appellant in Powell appealed, adopted by this Court at [22] of that case.
a) The lease in referring to a “final expiry date” contemplated a term which could be extended to that date;
b) Clause 35 of the lease contemplated a “renewal of term”;
c) Where there was a renewal of the term, cl 35 required no further deed to be completed;
d)Clause 35 did not refer to a new lease nor was any such lease entered into;
e) The creation of the renewal was by the lessee exercising a unilateral act pursuant to cl 35;
f) The rent fixing machinery under clauses 35 and 2.2 expressly continued to be operative after the renewal, on its face setting up a single contractual regime capable of extension to the final expiry date; and
g) In cl 35(c) the use of the terms “this lease” and “further terms”
referred to the existing lease as being capable of extension.
[52] Counsel for the defendants has sought to distinguish Powell but for reasons I do not regard as displacing those above. I am satisfied the original parties to the lease intended not a new lease but an extension of the term of the existing lease when the renewal took place.
[53] The other relevant document is the deed of assignment. It provides:
1.THE ASSIGNOR having received the Purchase Price assigns to the Assignee all the Assignor’s estate right title and interest in the Premises and the Lease all as set out in the First Schedule.
2. THE ASSIGNOR and the Assignee covenant as set out in the
Second Schedule.
3. THE GUARANTOR covenants as set out in the Third Schedule.
4. THE GUARANTOR covenants as set out in the Fourth Schedule.
5. THE ASSIGNOR and the Shareholder covenant as set out in the
Fifth Schedule.
6.THE ASSIGNOR, the Assignee, the Landlord and the Guarantor all acknowledge that the current term under the Lease expires on the date set out in the First Schedule and the current rent is as set out in the First Schedule.
7.THE LANDLORD consents to the assignment but without prejudice to the Landlord’s rights powers and remedies under the Lease. If any Lease Variations are specified in the First Schedule the Landlord, the Assignor, the Assignee and the Guarantor agree that as from the Date of Assignment the Lease is varied as set out in the Lease Variations.
[54] The first schedule includes the following:
RIGHTS OF RENEWAL: ONE TERM OF SIX YEARS
…
EXPIRY DATE OF CURRENT LEASE: 31st MARCH 2007
…
LEASE VARIATIONS: CHANGE OF BUSINESS USE TO MANUFACTURING AND PACKAGING OF CHEMICAL PRODUCTS; VARIATION TO INITIAL RENTAL
[55] The fourth schedule provides:
1.IN consideration of the Landlord consenting to the Assignment of Lease at the request of the Guarantor the Guarantor guarantees to the Landlord:
1.1The due and punctual payment to the Landlord by the Assignee of all future rent and other moneys provided for in the Lease; and
1.2 The observance and performance by the Assignee of all the
Assignor’s covenants in the Lease;
and the Guarantor indemnifies the Landlord against any actions, costs, claims, demands, damages or losses suffered by the Landlord as a result of the Lease being lawfully disclaimed by any liquidator or receiver or arising through default being made by the Assignee in payment of rent or in observance or performance of the covenants, conditions and provisions in the Lease from the Date of Assignment or otherwise howsoever.
2.THE Guarantor agrees that neither an assignment of the lease nor any rent review in accordance with the lease nor any indulgence granting time of time waiver or forebearance to sue or any other thing whereby the Guarantor would be released as a surety in any way releases the Guarantor from liability hereunder.
[56] In principal issue is whether it is arguable that in referring to the “current term under the Lease” expiring “on the date set out in the First Schedule”, and the reference in that schedule to the “expiry date of current lease” as 31 March 2007, the parties to the deed of assignment intended, by contrast to those to the deed of lease, that in the event of renewal a new lease be granted rather than the term of the existing lease extended. In considering this I have had regard to the appropriate starting point: that the exercise of an option to renew a lease will ordinarily involve the creation of a new lease. The exercise remains, however, one of the true construction of the respective rights and obligations of the parties as expressed in the relevant documentation.
[57] As a matter of construction of the relevant documentation I am of the view that it is not arguable the parties intended that in the event of renewal a new lease be granted. I consider:
a) The original parties to the deed of lease, as I find above, intended that in the event of renewal the term of the existing lease be extended.
b)The deed of assignment was presumably intended to be consistent with the deed of lease (I refer in this regard to the judgment of Blanchard J in Gibbons Holdings Ltd v Wholesale Distributors Ltd at [23]). It is clear that the right of renewal was to carry over – the deed of assignment makes specific reference to it. I would not lightly impute an intention to vary the nature of the new term contemplated by the lease, particularly in the absence of provision for an appropriate alternative mechanism. It is more likely the nature of the new term contemplated by the original parties to the lease was to continue to apply on its assignment. A certain imprecision in this regard is understandable in the context of a standard form instrument, as the deed of assignment was.
c) The deed of assignment makes express provision for certain variations to the lease. Variations to the nature of the term contemplated and the mechanism for its creation are not among them. The parties could readily have provided that in the event of renewal the parties intended a new lease be granted rather than the term of the existing lease extend.
d)The factors considered in Powell – such as the renewal requiring no further deed to be completed, its lack of reference to a new lease, the creation of the renewal by the lessee exercising a unilateral act, the rent fixing machinery remaining operative – apply here also. If the deed of assignment had been intended to vary the nature of the new term contemplated by the lease, it would presumably have provided the relevant mechanisms by which a new grant of lease would be effected.
[58] In the context of the deed of lease and of the commercial transaction being undertaken, I would therefore read the references to the expiry of the “current term” and to the “expiry date of the current lease” in the deed of assignment as continuing to admit of the existing lease being extended should the right of renewal be exercised. In that context, and for the above reasons, I am satisfied the parties to the deed of assignment intended not a new lease but an extension of the term of the existing lease if the right of renewal was exercised.
[59] I conclude that the lease subsisted throughout the renewed term and, as a result, so did the guarantee. The second defendant is liable for the failure of the first defendant to pay rent under the lease under that guarantee.
[60] I turn to consider to whom the second defendant is liable. The guarantee appears in the third schedule to the deed of assignment. The parties to that deed are the second defendant and All Clean Holdings Limited. Counsel accept that All Clean Holdings later fully assigned the head lease (and therefore the relevant reversion) to the plaintiffs, though the deed of assignment is not before the Court. It is unclear whether or not the guarantee has been formally assigned.
[61] However, given that counsel accept the plaintiffs have taken transfer of the reversion, nothing turns on whether there was a formal assignment of the guarantee. French J summarised the position in Stonehurst Accommodation Ltd v Dumelow HC Christchurch CIV-2008-409-46, 10 July 2008 at [19] in the following terms:
[A]t common law a guarantor of a lease is automatically liable to the transferee of the reversion for those breaches of the tenant’s covenants which run with the land without there being any need for a formal assignment of the guarantee. The reasoning behind the principle is as follows – a covenant by a guarantor that a tenant’s covenant which touches and concerns the land shall be performed and observed is itself a covenant that touches and concerns the land. The benefit of the guarantor’s covenant thus runs with the reversion and the covenant is enforceable without express assignment.
[62] That case, as here, involved a covenant to pay rent. It is one that touches and concerns the land (see [22] of Stonehurst). The covenant by the second defendant that the first defendant’s covenant to pay rent shall be performed is itself a covenant that touches and concerns the land and the benefit thereof thus runs with the reversion and the covenant is enforceable without express assignment.
[63] The second defendant is, accordingly, liable to the plaintiffs for the breach of his obligations under the guarantee.
The liability of the second defendant notwithstanding renewal by a new grant
[64] Counsel for the plaintiffs submits, in the alternative, that on a proper construction of the deeds of lease and of assignment of the lease the guarantee would subsist even if renewal created a new lease. Counsel relies on the obiter reasoning of this Court in Powell at [26] and following.
[65] I accept it is arguable that that reasoning might be said to apply here. Counsel’s submission, however, was substantiated neither in written or oral submissions. Its determination does not affect the outcome of this case and having not had the benefit of full argument on the issue I do not think it appropriate that I express a view on it here.
Result
[66] I am satisfied the first and second defendants have no arguable defence to the entry of judgment on liability in these proceedings. The plaintiffs’ application for summary judgment on the issue of liability on their claims against the first and second defendants is granted by the following declarations:
a) The first defendant is in breach of its obligations under the renewed lease;
b)The second defendant is in breach of his obligations under the guarantee in failing to make good the first defendant’s breach.
[67] I direct a trial of the issue of amount.
[68] The case is to be listed in the chambers list on 23 March 2011 at 2.15 pm for further directions. Memoranda should be filed at least two days prior with proposed directions.
[69] Costs should follow the event. The plaintiffs are entitled to costs on a 2B
basis plus disbursements as fixed by the Registrar. I order accordingly.
Associate Judge Sargisson
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